Tech recovery, what tech recovery?

31 Jul 200315 Views

Sometimes the press gets accused of being too negative about prospects for the technology sector. However, if the press were to be supportive it would be quickly dismissed as naive. The fact is the good times ended two years ago and the late hangers on at the party are just going to have to sip from the dregs of the wine barrel or drink a cup of coffee and get real.

The tech sector is still reeling from the effects of a tsunami and the recovery work is only half finished. For Ireland, the aftershocks are still being felt. Our indigenous companies, once the darlings of the press pages, are either consolidating or about to sell to bigger fish.

Multinational companies are pressing the government hard on the subject of competitiveness and despite ardent denials, their future here is still in doubt. As we went to press, international software services firm Software Spectrum moved 100 jobs from its Dublin support centre to Hamburg, Germany, where it reckoned it could achieve greater economies of scale.

That’s why the recent batch of financial results from some of the world’s largest players make interesting, albeit worrying, reading. Many of these companies employ hundreds, if not thousands, of people in Ireland. Their problems on a global scale should be seen as Ireland’s problems on a local scale.

The world’s second largest wireless phone company Motorola posted weaker-than-expected quarterly revenues and reeled in forecasts amid a slowdown in demand for mobile phones. As well as this, Lucent Technologies, which in recent months laid off 200 workers in Dublin, said it would be missing its profit targets this quarter.

Despite topping expectations, Intel, which employs 4,500 people in Ireland, cautiously opined that there was no early sign of a recovery. Chief financial officer Andy Bryant is reported as throwing cold water on signs of a tech recovery, saying he has seen very few signs of companies upgrading their personal computers or increasing their budgets for tech spending.

Consumer electronics giant Philips said that sales continued to slump as a result of poor consumer confidence and the aftershock of SARS.

All eyes are on the US for signs of a tech recovery, with many banking on PC sales becoming the first visible sign of recovery. The logic? PCs have been sitting at the bottom of the cycle the longest.

Executives in the sector, particularly in Ireland, have been waiting for the cycle to bottom out for almost a year now. Like the Guns N’ Roses song, “all you need is just a little patience.” Get used to it.

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While the PC industry has yet to assert itself, all eyes have been on the stock markets, where a continuous barrage of rallies by tech stocks have both sparked and faded hope. That tech stocks are the most active of their particular species is a long-accepted fact and continuous rallies by tech stocks after a war are pretty traditional. Confidence amongst brokers may auger well for the industry, but until the fundamentals such as increased spending by consumers and businesses alike improve, then no number of rallying will make much of a difference.

All the money is on what a consolidated tech sector will look like in the years to come. Oracle’s recent attempts to acquire PeopleSoft, EMC’s acquisition of Legato, and recently on a local scale Calyx’s acquisition of Moss Technologies and system integrator Mentec’s decision to go on an acquisition trail in the UK signal major changes within the established orders of the industry.

While Ireland will be at the centre of most traditional technology storms, Dublin will see most of the changes on the dotcom front. As a result of its acquisition of Overture, Yahoo! is set to come to a town where arch-rival Google is planning to establish operations.

Overture, which has an operation in Dublin’s East Point Business Park, is widely regarded as one of the pioneers of internet advertising. The deal marks the latest in a series of acquisitions throughout an industry that is now regarded as restructuring, which is resulting in the creation of new internet blue-chip players. While Yahoo! has bought internet search, online advertising and job listings services, rival InterActive Corp has mopped up online commerce companies.

Interestingly, Yahoo!’s purchase of Overture positions it for a head-on fight with Google for domination in the internet advertising business. After three steady years of decline, online advertising is projected to grow this year.

Overture is widely known to have devised the ‘sponsored search’ form of online advertising. The company sells businesses the right to advertise on the pages that return search results on sites such as Yahoo!, linking advertising directly to the subject of the searches.

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In an unexpected boost to market sentiment for young Irish tech players, Irish Stock Exchange chief executive Tom Healy has predicted that while no companies are likely to float on the stock exchange this year, 2004 may see firms from the technology sector joining the market in order to raise funds.

Healy also indicated that the Irish Stock Exchange has no plans to scrap the ITEQ, which could secure new entrants next year if the tech sector is the source of IPO (initial public offering) activity in 2004. In recent months the future of the ITEQ was considered uncertain following the delisting of two star players Riverdeep and Alphyra.

Since its launch in September 2000, at the height of the dotcom boom, ITEQ has managed to accrue only eight high-tech companies, compared to the 40 initially proposed. Originally it had been envisaged that the list would fulfil the role of a tailor-made market for Irish technology companies undertaking IPOs. It was also intended to allow fast-growing firms to speedily undertake transactions without having to seek the approval of the shareholder. With a current capitalisation of just €800m and a membership expected to be reduced to six, its original ambitions have had to be seriously scaled back.